Originally published on April 24, 2020, updated June 4, 2020
COVID-19 has presented some interesting changes in the world of eCommerce. James Thomson of Buy Box Experts moderates this panel for a discussion about short and long-term changes related to COVID Amazon brands are making as well as trends in the industry. The discussion features Joe Kaziukenas from Marketplace Pulse, Nich Weinheimer from Kenshoo, Scot Ciccarelli from RBC Capital Markets, and our own Liz Fickenscher.
You can watch the webinar above or check out the show notes below for the recap and a full transcript.
COVID-19 has changed the world of eCommerce and Amazon brands are learning to roll with the punches. It’s been a roller coaster, hasn’t it? James Thomson of Buy Box Experts moderates this webinar which dives into some of the short and long-term impacts, as well as trends in the industry.
Join industry experts for a discussion that covers the changes in customer behavior and buying habits, the state of online grocery, Amazon advertising trends related to COVID-19 restrictions at FBA warehouses, and real stories from brands navigating this challenging and sometimes rewarding eCommerce landscape.
Consumers reacted to the news of a global pandemic by reaching deep into their pockets. As Nich Weinheimer of Kenshoo explained, there were short term spikes as people turned to panic buying to stock up on key household essentials. Things have shifted considerably since then, though.
Reviewing the data, Joe Kaziukenas of Marketplace Pulse pointed out that “categories like toilet paper, face masks, and all the essentials are very high...toilet paper has been in very high demand for months now.” As certain groups of products became more popular, though, others fell off the list. “Luggage used to be in the top 100 most searched items on Amazon,” he said. “Now, it’s in the top 3000, which means the sales have completely evaporated.”
Instead, consumers turned to products such as electronics, puzzles, and toys to help them shelter-in-place more comfortably. Joe warned, however, that once the pandemic is over, all of this will likely change again. “It’s going to take a while for it to recover to the sort of normal use we’ve seen before — this is not something you can influence directly,” he said.
The big winner so far? Online grocery! People can work around shortages of hand sanitizers and disinfectant wipes, but they’ll always need food. Unfortunately, this is one area where Amazon has stiff and potentially more experienced competition.
All customers can order non-perishables from Amazon.com, but they need to be in a market that offers Amazon Prime Now to be able to purchase fresh foods. For those thousands of customers in smaller cities or rural areas, this just isn’t an option, so they’ve had to look elsewhere.
During these turbulent times, buyers have turned to Walmart and services such as Instacart as a safe and convenient option for groceries. As Scot Ciccarelli of RBC Capital Markets explained, in addition to a quick pick-up option, Walmart started “aggressively rolling out home delivery. Within the last two years, they've gone from 300 stores to about 1600, covering about 50% of the US population.”
With trends shifting so quickly right now, it’s best not to blindly follow the data. Thomson noted that companies that base inventory decisions on current trends run the risk of overstocking and getting stuck with excess inventory.
At the same time, Amazon’s sudden struggle to keep things in stock and deliver orders on time is a major issue for third-party sellers. Their ability to quickly get customers what they need at a low price is what set them apart from the competition, and now this lapse in service has opened the door to other online retailers. Buyers have started looking elsewhere to fill the gap.
So, how do you find a balance? The panelists discussed how diversified channels and warehousing can bring resiliency during these unprecedented times. You might consider onboarding new products, switching up your advertising efforts, or even jumping into the grocery game, but ultimately we have to accept that some things are just out of our control.
Liz Fickenscher of eComEngine spoke with brand executives across several categories and consulted with agencies that manage brands that sell on Amazon and other eCommerce channels. She found these short and long-term trends:
This webinar truly dives deep into the market shifts on Amazon during the COVID-19 pandemic, combining excellent commentary with graphs, data, and valuable insights. Grab a snack, get ready to take some notes, and don’t miss this real-talk discussion about selling on Amazon during a pandemic.
James: All right. Good morning to you all. Good afternoon to those of you on the east coast. My name is James Thompson. I'm a partner with Buy Box Experts. Thank you for joining us today for our webinar specifically talking about how COVID-19 is accelerating immediate and long term growth opportunities for brands on Amazon. We are joined today by a rather unusual star studded panel of speakers.
James: We have Nich Weinheimer from Kenshoo. Nich is a longtime friend of By Box Experts, delighted to have him with us today. We have Joe Kaziukenas from Marketplace Pulse, one of the leading research organizations that studies the Amazon channel and other eCommerce channels. We have Scott Ciccarelli from RBC Capital Markets. Scott covers the eCommerce space and has a depth of knowledge around Amazon and online that makes his presence today a wonderful contribution. Liz Fickenscher from eComEngine. Many of you are familiar with Liz. Liz is an industry liaison who talks to all sorts of folks in eCommerce and has the pulse of what's going on with Amazon sellers, Amazon solution providers and so on.
James: We have a lot of material to cover today, and it's a little bit unusual of a webinar in terms of the breadth of content we're going to cover. Nich is going to start us off by giving an overview of what we're seeing in terms of new customer, new activity happening today on Amazon. Joe is going to talk about some of the opportunities that Amazon shipping delays have created for other types of markets and what that means for online shoppers. Scott is going to dig in depth into the online grocery space. Certainly one of the most impacted categories of products we have today on Amazon, and then Liz is going to talk extensively about what brand executives are saying, what agencies are saying to her in terms of changes they're having to make now, but also changes they're going to have to make in the future, as they see the impact of what's happened here in terms of consumers being interested in eCommerce and shifting the way they think about shopping.
James: So without any further ado, let's get started. Nich is going to kick us off. Nick, would you please take us.
Nich: Yeah, absolutely. Thanks, James. Just jumping right in, I thought it'd be helpful to give a quick backdrop of the digital marketing space in general that we cover, we have over 7 billion underspend across search social and eCommerce channels, eCom is predominantly Amazon, although Walmart is in there. James if you want to jump right into the slides. We've seen here general decline in spend across each of these kind of core segments of our business. Paid social coming down in costs that we've seen in terms of CPM stabilizing but impressions of folks spending more time on social media. Paid search, obviously as major retail and hospitality travel kind of fall off in terms of relevance right now. Spend there has definitely fallen off in a big way. eCommerce, slightly a different story.
Nich: And as we look at our Amazon index, we definitely seen spikes in the short term as kind of panic buying in stock ups happen specifically in key household and CPG verticals. But over time, we've seen sort of the conversation around essential versus non-essential and inventory issues affecting advertisers ability to spend, and certainly Amazon kind of throttling their advertising presence in a few different ways. Jumping right into the next one. We've kind of come up with this notion as we split down kind of into product advertising versus just text ads across search versus social products, where product intentionality, this notion of product intentionality of the consumer is kind of showing that product advertising even across other channels outside of Amazon are somewhat immune and responding and recovering more quickly as consumers are going online and seeking products across different channels with dynamic product ads, within social or product ads within shopping in search as well have recovered and kind of come back over the mean quite quickly after an initial drop.
Nich: So kind of just keep backdrop takeaways James if you go to the next slide, in different verticals, major drops in CPCs as demand just pummeling through Amazon system within CPG. If you look at eCommerce is gray and channel search shopping is green. In though we saw kind of initial click through rate spikes, as folks were certainly there to buy, product availability, inventory issues, and so forth. We've seen things kind of stabilize as panic buying has kind of fallen off. But there are different stories across different verticals, consumer electronics, for example, as folks were ramping up their shelter in place preparation. We've seen increased metrics across the board. During periods like that though, we've seen kind of mixed results as these aren't necessarily repeat purchases, moving into kind of weeks under the belt of stay at home in the COVID crisis.
Nich: So just a little backdrop, and I think the key takeaways here, across the channels this notion of product intentionality has sort of influenced the performance that we've seen in advertising, and then these ads have continued to maintain high levels of performance. And, we've seen lots of stories, and I'm excited to hear some of the other presenters, as the rest of retail starts to see that, 17%, are now seeing about 50% of their business being driven by eCom during this period, comparison to about 7% of retailers in 2019. And who more than Amazon jumping right into kind of the meat of what we were looking at as hypothesizing, what is the sustained growth going to be as we see this in our data? And we looked at a metric that Amazon started to release the beginning of 2019, this new-to-brand metric, which effectively was their answer to advertisers wanting to know, is this incremental to my business when I invest in advertising.
Nich: So Amazon responded with this metric that lets advertiser know, for a given order that was ad driven, whether that customer was new-to-brand, whether they purchased your product really in the last year. So is this a new customer to my brand. So with that notion that this data is coming directly from Amazon to our advertisers. Across our index on Amazon of hundreds of customers, millions of dollars under spend for this analysis, we've seen that new-to-brand orders are up 66% between February and March. New-to-brand orders tend to be relatively static throughout the year, a little bit of growth in Q4 and so forth. But to see a jump like this of net new customers to brands is a really interesting indicator of the sustained growth of eCom, and to see them converting the 20% higher rate than new-to-brand customers before the crisis, it's clear that there's some new adopters of eCom coming into the space.
Nich: Potentially brand loyal customers that are trying the channel for the first time but know the product they want are converting at a higher rate. As we dig into some specific categories just quickly to give you a snapshot, obviously, as you've seen in some of the trends, looking at lots of data in the space, certain categories are major winners as folks are at home with their kids. 141% growth in new-to-brand orders for toys and games category with conversion rates up 41%, which is just a staggering amount of growth of new-to-file customers for these brands. In other categories like beauty where folks are taking their beauty regimen in house not going to the salons more up 93% between February and March, and seeing sustained growth by the way for these categories into April, as folks have transitioned into patterned behavior on the Amazon channel with conversion rates in this case up 24%.
Nich: In health and personal care also seeing pretty significant growth in new-to-brand orders, slightly different story in conversion rate. Getting some interesting thoughts though definitely even seeing a growth of 1% conversion rate is significant, let alone some of these double digit jumps in conversion rate. In grocery, up 105% between February and March new-to-file customers coming into these brands, with conversion rates up as well.
Nich: Keeping going there, James, and looking at this purchase likelihood as I mentioned, its growth and conversion rate across these new-to-brand customers it's clear that there's some underlying brand loyalists potentially coming in trying this channel for the new time and continuing to convert, and without seeing this slow down, this is sustained growth of new-to-brand customers at a rate that we've never seen across the history of having this metric. So we wanted to hypothesize how do we think through what the sustained growth will be given this data? It's probably the closest proxy to understand sustained growth and if we look at major peak periods like a Q4 for example, yeah, there's some lift from sort of average new-to-brand. Going from 4%, 4 1/2, 5% to 6% in Q4, great.
Nich: You're getting a lot of new customers in a peak period like Q4. A lot of folks have said, hey, we're going to get another Q4, and that's how during this COVID period, and that's how we're going to measure sustained growth. But if you really look at basically the doubling of that new-to-brand metric, relative to a peak period like Q4, we're seeing not just a high volume period, we certainly are, but we're seeing much more new customers coming into the picture at almost double the rate and to really look at what's the closest actual proxy to measure there. James, if you want to move ahead.
Nich: The sorry going back just one the Prime membership growth that we see relative to let's say, a 6%, new-to-brand average in a Q4, is a really good measure to start thinking through. If we have double average new-to-brand customers coming in through the advertising channel, I expect we'll see probably doubling of a rate of new Prime members which are almost by definition, sustained growth for Amazon. Once a Prime member, you are repeat purchaser.
Nich: So we expect this is probably the closest measure. A closest kind of proxy measure to Prime growth that we'll see is this new-to-brand metric. So the key takeaways from what we looked at this notion of product intentionality folks being online more at home, their behavior has changed there, they're going to all of their channels, and I'm excited to hear some of the other places they've gone in the world where Amazon pushed out delivery windows and so forth.
Nich: But there are many folks who have different behavior in the past that have come in and shown that they are incremental to advertisers to brands on Amazon, and are responsible for the growth of these brands in this period. And then we believe that this is the closest proxy to Prime membership that this behavior will be sticky, and looking at this and relative measures against Q4 growth, for Prime and growth of Amazon in general, we think, Amazon could gain at least an incremental 20% year over year growth as a result of increased new customer acquisition. And we think that this is just taking celebrated them at least one year in advance on the adoption curve of commerce in general, in terms of sustained growth.
James: Great. All right. With that, thank you, Nich. Let me transition over to Joe Kaziukenas, who's going to talk with us specifically about some of the challenges that the Amazon shipping delays have created for the creators in terms of opportunities for others, Joe.
Joe: Yeah, thanks James. Good morning, everyone. I think we can go to the next slide.
Joe: So the key data point we've been looking over the last couple of months now, unfortunately, for all of us, is how Amazon search has changed and what are the items people are looking for when they're shopping for Amazon? And obviously, the obvious categories like toilet paper, face mask, all the essentials are very high up there, and you can see how all the way back at the start of March, everything was already trending up. Toilet paper has been in very high demand for now months, but then all the other items started to rise up in popularity. But as certain groups of products became more popular, you will also find that a lot of other different types of products became kind of fell off the list.
Joe: So in the next slide, you will see how many, many types of products are no longer being bought by customers. For example, an obvious one in this slide is luggage. So luggage used to be in the top 100 most searched items on Amazon, and then by now it's in the top 3000 which means the sales have lost, I mean the sales have completely evaporated. It's the same for things like dresses or swimsuits or sunglasses or anything which involves traveling or leaving your house. So the first takeaway from this is that while your brand might be having an increase in sales, if you're not having an increase in sales, if you're seeing a decrease in sales, it might not be up to you to actually increase that.
Joe: I mean, people just have stopped buying luggage. Even if you try to increase advertising, if you try to increase your marketing, that's not going to make them buy luggage anymore. Next slide. So, given this kind of search volume and the changes in the search volume, the index we've been tracking is what we call the coronavirus index on Amazon, which tracks the kind of relative popularity of essentials on Amazon, and those essentials obviously includes face masks, toilet paper, as well as all the other items in kind of that category of products, and you will see here that kind of starting end of January, people have started buying face masks.
Joe: Come then to February, the face masks kind of have fallen off because they were out of stock on Amazon. People have shifted to hand sanitizers. Mid March, it's going to reach a peak as people were just flocking to Amazon to buy all of the things they can, and those things are still in stock on Amazon. But you'll also find that by now that index has really dropped, and the reason why the index has dropped is we are in what I would call the fifth phase of the pandemic buying.
Joe: So the first phase was February, which was people were buying items to prepare for that pandemic. Some people were buying face masks, hand sanitizers over other items. A couple of weeks later, as those items kind of sold out, and as the sort of panic rose, people were starting buying toilet paper and all the other items. So you had this massive demand shock for the system. The next thing you know people were buying working from home items. People were buying webcams as well as screens to work from home.
Joe: The fourth stage was people were buying all the items you would need to kind of have a good quality of life at your homes. Some people were buying puzzles and toys, and all the other items, and then in the last week, we're seeing the last stage of this, which is a stimulus bump as people were buying all sorts of different items, because there's kind of the check some people have received. So many stages of buying is kind of out of control for most brands, but you have to kind of understand where in the spending are we in now, and if you go to the next slide.
Joe: So to me this is kind of what was most important to understand is, what are these trends mean? What does it mean to look at the search traffic? What does it mean to look at this sort of coronavirus index? You have to understand that this data obviously impacts how you should be sourcing and forecasting your sales in the future, but also realize that some of these trends are not going to last forever, and then I have a few examples. So if you look at face masks, it's very clear that the demand for these items is going to look something like this. For the last couple years, they were in the steady demand as people used them at their home. All of a sudden the demand for them exploded exponentially.
Joe: It's very clear that once the pandemic is over, that demand is going to crash, and then it's going to take a while for it to recover to the sort of normal use as we've seen before. Again, this is not something you can influence directly. This is just how consumers are going to be shopping for these sort of items. A different kind of a category of a product is non-essential, for example, luggage, people have stopped traveling, people have some buying them. The demand for that has slowly went away, but it's very clearly that once we are back in the normal times that the demand is going to pick up again, just as quickly and then things are going to be back into normal, and then the last-
Joe: ... Yes.
James: Joe, I was going to say unlike the previous example you've showed with face masks, companies may be stocking up more supply than they actually need and be stuck with excess supply. Whereas something like luggage, it's unlikely that anyone's going to be ramping up supply, and they end up with a glut of supply more than what they otherwise would normally have had.
Joe: Of course, of course. Let's say and then the last example was of grocery and trends which are being borne out of this pandemic, where not only have the sales increased online for these items, even once the pandemic is over, their trend is going to sustain itself. So the most important thing about this is that realizing that A, the trend themselves have shifted over time to different types of categories, but also you need to realize that whatever category you're in, might be experiencing temporarily decrease or increase in sales and then obviously that impacts how you should be sourcing.
Joe: So if you're in the business of launching private label goods, maybe relying on data right now is not the best way to do it or not relying on it 100% because that data next month is going to be completely different, and then by the time your product get in stock, the consumer demand might have evaporated. And then I wanted to quickly look at how is this demand changing other retailers because of the high demand on Amazon, Amazon itself is running out of stock, stuff's running out of stock.
Joe: So the biggest winners, unsurprisingly, are all the largest retailers as well as all the brands who sell through them. So for example, Target's traffic in March was up 37%, it's going to be up even more in April, and Target already said today that their sales so far in April are up four times from what they used to be in online sales. Best Buy sales, I think are up three times. If you look at Etsy, Etsy sales in the last 30 days have been higher than they ever were in the company's history.
Joe: So everyone, including Amazon is having an increase in sales. But the fact that Amazon is struggling to keep items in stock, other retailers are benefiting because consumers are doing delivery comparison which would never existed before, and I believe you should [inaudible 00:19:26]. And yeah, so the biggest winner of course of August in groceries is Walmart. Their app has become the number one in the app store for iPhone as well as Android, and it will probably remain like that. The next slide.
Joe: So yeah, I think the key to understanding this is that because of Amazon struggling, struggles with fulfillment, people are doing delivery comparison, and because of delivery comparison, our channels are having a huge lift. So for the brands and the sellers who are on these other platforms, the sales increase on both platforms, it's been much higher than what the sales increase was on Amazon, respectively. Huge win for them.
Joe: So quickly, in conclusion, if you want to understand what the consumers are doing, look at Amazon search traffic. All brands have access to this. It's an easy report to understand. Because of Amazon struggles with delivery, all the other channels are having a huge lift. If you're on these channels, or you want to be on those channels, this is the right time to do that now.
Joe: Obviously, on the groceries is a huge lift. I believe Scott is going to talk much more about that in a couple minutes, and then a trend which is right now might not be a trend tomorrow. So if you're doing any sort of data analysis of trends, and if you're trying to predict and forecast inventory levels in sales, keep in mind that these things are going to change very, very quickly, and the last spot is what we learned already, obviously the more channels you have, you can benefit from this increasing sales in all the other channels.
Joe: The few brands which are on the Target Plus marketplace, for example, which only has a couple of a 100 brands are having incredible increase in sales. It's obviously up for all the other retailers to kind of sustain their growth and keep the Prime members shopping on let's say, Target or Walmart, and something are just out of your control. If you're in luggage business and people have stopped buying the luggage, just try to survive as a company as a business rather than trying to force people into buying luggage. That's it.
James: Thank you, Joe. I see that a number of people have been submitting questions and that's great. I encourage you to continue to submit questions. We're going to take our questions at the end of the four presentations. We'll have lots of time for doing that. So with that, let me transition over to Scott Ciccarelli. Joe had talked a little bit about grocery. Nich had talked a little bit about grocery. Scott's going to do a deep dive into the specifics of what we're seeing with grocery right now, and with that, please take it away, Scott. Thank you.
Scott: Thanks a lot James, and good afternoon, everyone, and yeah, thanks for the lead-in guys. But grocery is obviously one of the areas that has been impacted the most. There's almost no question about that just regarding the effect of COVID-19, and people want stuff delivered to them. I think to really understand the changes that are happening though, you actually have to understand a little bit about kind of recent history in online grocery. So James, could you flip this? There you go.
Scott: So look, we've had a tremendous amount of growth and increase in penetration through most retail verticals, but grocery was always much lower than other areas. I think part of that had to do with just the lack of awareness of the online grocery delivery, but also it's a very personal issue, especially when you're dealing with fresh meat, fresh produce, vegetables, everyone's got kind of a personal preference and so there's also a lack of trust and let's face it, Amazon as good as they are even they struggled going with online only, which is why they bought Whole Foods back in 2017. Slide. Thank you. Now Walmart, it's been a really interesting venture for Walmart. They've had really an omni-channel strategy that they've pushed very aggressively, and for anyone that doesn't know this Walmart is by far the biggest grocer in the US with about $200 billion per year in grocery sales when you count both Walmart and Sam's Club. And so they've really gone out a couple different ways.
Scott: So yes, they have these full super centers with complete grocery store inside but also what they've rolled out what they call click and collect. So think of it as buy online pick up at store strategy with McDonald's drive-through kind of thrown in. So you can order your grocery order online or through the app, drive up and somebody from Walmart will actually put it right in the back of your car for you or in your trunk. Now especially when you get inclement weather or when you have maybe crying kids in the back, you can see the kind of advantage that would be just from a convenience factor, and at this point click and collect has been rolled out to about 3200 stores and that covers about 80% of the US population. But Walmart's they're pretty smart guys and they understand that not everyone wants to drive to the store.
Scott: So they've also been aggressively rolling out home delivery, and within the last, call it less than two years, they've gone from 300 stores to about 1600 covering about 50% of the US population. So moving to the next slide, Walmart has enjoyed a tremendous benefit from the pushes that they've made in both click and collect and delivery and a couple interesting stats. So their online basket is, I believe more than 2X today a regular in store purchase, and US grocery sales, despite the size that they're at where it gets you have the law of large numbers working against you is growing at its fastest rate, actually in well over a decade, and just from the behavioral standpoint, it's kind of interesting because initially people were ordering let's call it middle of the store type items, cereal and pretzels and kind of box goods.
Scott: Increasingly people are ordering fresh goods, organic, meat, vegetables, et cetera, to the point where an average online order has a heavier skew towards fresh and organic than in in store purchase. Next slide, please. So our friend and colleague, Mark Mahaney, who covers the internet for us. He has done a tremendous amount of work in the online grocery business, and we're going to show some of the slides that he recently published because of some survey data. He's been doing these surveys for a multiple years, and he's been at the forefront of this, and so we are very happy to share some of his information but when you look at the channels that people are using for grocery, you can see there's been two big kind of winners, if you will.
Scott: Supercenters like a Walmart where they continue to kind of gain market share, and then obviously the online grocery segment, and then there's a number of slides a kind of, basically ask people, where are you doing your purchasing, right? So, when you look at this particular slide, have you purchased groceries online? A couple years ago, you were in kind of a mid-team's penetration rate. Today, it's well over half. So look, that means half the population of US is at least trying it as an application of whether and trying to figure out whether they're going to like it or not.
Scott: This has to do with kind of user frequency. So if you take a look at this slide here, what this basically says is, if you are one of those people who's using online grocery, it's not something where you've just used it once in the past maybe a year or two ago, they're showing that not 85, 90% of the people they've done so within the last three months. So you can tell just that user frequency if they've had a good experience continues to increase. The next two slides are basically going to show, just in terms of kind of future usage, if you will.
Scott: So for those people that have tried it, you have basically 90% of the people today expect to continue to utilize online grocery, and very similarly on the next slide. Do you anticipate you'll begin buying groceries online in the next six months? And again, this survey was conducted in the middle of kind of the COVID panic that we've all gone through just a couple weeks ago, and you can see that intent of purchase, if you will, has increased dramatically in a relatively short period of time.
Scott: So I think Joe was talking about this a little bit ago. You've seen data that our partners so from Apptopia, really but did grocery app downloads and so it's not just Walmart, it's really the delivery places that have seen a tremendous amount of growth in their application downloads. So Target, Walmart Grocery, Instacart, have all seen a massive surge in app downloads. In addition to the recent survey data, Mark Mahaney as well as one of our Canadian analysts were able to interview the president of Instacart, and we came away with some pretty interesting, what's called real time data points. Especially as one of the biggest delivery companies on foot for online grocery. And so, number one, the estimate is that online grocery was about 5% penetration. That seems about right based on our data, and they had an internal target that they could reach about 20% or the industry rather, would reach about 20% penetration over the next five years.
Scott: However, because of the COVID-19 situation in most of Instacart markets, they estimate that online grocery actually reached 20% in a matter of weeks, and very similar to Walmart, they've seen much larger basket sizes, anywhere from two and a half to four times the size of an in store purchase, their web traffic was up, their basket size was up, and that's very similar to the pantry loading phenomenon that we've seen at Costco and Walmart, Target, et cetera.
Scott: Now, one of the chief issues with the industry quite frankly, is just capacity. We know that Amazon, for instance, they cut out basically all product orders that weren't deemed essential. You had, Instacart and a number of others where you just could not deliver the product. So people couldn't get slots to have product delivered, because again, the demand was far outstripping the supply. In addition, we've had many, many anecdotes in situations that we've heard about in the marketplace where orders are just simply incomplete, as much as 50%, or more incomplete, and so that kind of leaves a bad taste in consumers mouths. And so, that is something that could potentially adversely impact user frequency, if that isn't addressed relatively quickly.
Scott: So here's a slide basically showing that there's been a massive increase in expectations for hiring. For instance, Amazon's planning on hiring 175,000 people, Walmart's planning on hiring 200,000 people. The chart says Shipt, but it's actually supposed to be Instacart, where they're planning on hiring 300,000 people. By the way, that's on base of 200. So they're actually planning on ramping their picker staff, their shopping staff by 150%, just because of the huge surge in demand that they've seen.
Scott: So this gets into an interesting question of, how will all this evolve? Okay, so that's really interesting about that's what's happening today, how do you think this evolves? And we've written about and have a thesis that when you take a step back and say, look, the only thing that kind of gets delivered to the house every day, and this really comes back to making money for the people who are doing this, by the way, the only thing that's delivered to your house every single day is the mail. So the United States Postal Service, and I know I live in a town in New Jersey, and you see the mail truck parked in front of your house, and they're delivering mail to four or five houses in a row.
Scott: The only thing that comes close to that kind of frequency from a purchase perspective is food, and so where I think the model kind of breaks down from a profitability perspective is if I drop something off at Scott Ciccarelli's house, and then I go to Joe's house, which is eight blocks away, and then I go to James house, 10 blocks away, there's no economies of scale.
Scott: So I think what ultimately has to happen for this industry to consistently make money is you need to densify your trips. Effectively, if I can somehow corral people to all get orders on the same day on the same street, et cetera, then all of a sudden, I can park my truck, and I'd make three, four or five deliveries in a row, my contribution margin goes up on every single one of those deliveries. It's conversation I've had with a number of my companies, I've had it with some of the executives of Amazon. So I think ultimately, that's how it's going to evolve for these companies, will need to evolve rather, for these companies to really make money in the category because the potential is huge. It's obviously a massive market one. The biggest retail sectors, if not the biggest retail sector in the marketplace, but it's still incredibly thin margins, then I throw in delivery charges, and that becomes problematic. So I think I really need that economy of scale, that density to really make money at the end of the day.
James: Good. Thank you Scott for that. At this point, we're going to transition away from talking about a particular category and talk more about what are some of the others lessons Learned for brand executives? What kind of changes are executives making today? As well as what are some of the anticipated changes that brand executives see themselves needing to make in order to be able to adjust to the new world, whatever the new normal happens to look like? With that, let me turn this over to Liz. Thank you.
Liz: Thank you, James. I think the data is really important to look at. I don't think we knew what to expect. This was all very sudden, it was very unexpected, and we didn't know what Amazon was going to do. We didn't know what consumer ships were going to be and it was hard for brands to know how to proceed in a volatile and uncertain marketplace.
Liz: So since the coronavirus has reared its ugly head, I've been talking to brand owners and executives and agency owners who work with brands, specifically on their Amazon strategies and how they've had to shift their focus and refine their processes and more just make complete changes to the way they do things. And a lot of the data that is Nich, Scott and Joe put forth sort of supports what I've been seeing, specifically on the Amazon Marketplace, and I wasn't surprised to learn that despite the type of product a brand produces, or the category they sell in, the changes that brands that sell on Amazon are making are pretty similar across the board.
Liz: So I'm going to take you through a couple of stories. I'm not going to take too much time, because I want to leave plenty of time for Q&A. But I wanted to tell you just a few stories that relate to the data to sort of bring the data home and tell you how real life brands that are selling on Amazon right now are proceeding and the changes they're going to make in the future. So I talked to about 50 brand executives across several categories. I consulted with seven different agencies that manage brands on Amazon and other channels and found three and I call it a half because I thought that would be clever. Trends that are across the board the same that everybody's been adapting. And to comment on adspend, we'll get to that in just a second.
Liz: I did talk to an agency that has a client that sells organic hygiene products, which of course, the majority of which were essential when Amazon said only essential items at FBA but they saw that their A, cost was starting to rise out of the middle of nowhere. They'd had great sales since the lockdown. But the agency found out that while the brand was mainly essential items, there were about 20% of products that had extremely long shipping times, and that's something that's happening on the Amazon platform.
Liz: I know that I was shopping for an external monitor because mine died the other day, and I couldn't get one in time for this webinar. It's just taking longer because obviously Amazon is still focusing on essential items even though people are able to send in more items. In this case the agency did consult with the client, with the brand and say let's reduce the adspend. So I think a lot of the reduction in adspend is related to available inventory and projected shipping times. So, James, now we can go to the next slide.
James: Sorry about that.
Liz: That's okay. It's hard. I've had to do it lots of times where I had to rotate the slides for people. So one of the first things I'm seeing is a shift in manufacturing and I was really interested when Nich was talking about the beauty category and people taking their beauty regimen in house. I was actually walking by a salon in my neighborhood and there were these decals on the window that said #rootsarebeautiful, #don'tdohomecolor because people are actually taking it home and doing it themselves.
Liz: So some of the agencies that I talked to were Rankin Bank, Marknology. I talked to Shannon Roddy, I talked to eCommerce Nurse, Agilities, Dollar Rising, Sophie Society and I spoke to some supply chain experts mostly in Shipcom and a lot of the brands that we've been working with have had to make a shift in manufacturing and one in particular was a hair color brand, and they saw this tremendous increase in demand during the time that the lockdown was happening and it had to actually shift their manufacturing processes.
Liz: So they had to make more, they had to hire more people, they had to amp up their shipping, and I think that's happening for a lot of people, especially people that are manufacturing domestically. I know I watched a video that Ezra Firestone did the other day and he was talking about well his factory is in New York and New York's in bad shape right now. So how could he pivot and get his goods manufactured somewhere else and in the amount of time to meet the demand on Amazon.
Liz: Additionally, people who have been manufacturing in China or other countries that have been on lockdown or have come off of lockdown have had to sort of think about what the future of their manufacturing is going to be, and I know that there are a lot of really smart people out there that are helping brands identify good factories to work with, and they're helping do inspections, like Moseley does that.
Liz: But I think that there's been an overall reevaluation of manufacturing processes for brands, and I'm talking like brands that make their own stuff, not necessarily private label folks. Another thing to think about that is that if you're increasing the staff at your factory, and we're in this crisis, and we don't know how long we're going to be in this crisis, you're going to have to increase safety protocols, and in case of the beauty line that I was telling you about, they had to produce 500 times their usual volume. So that's a short term change because of demand right now. But obviously, we hope that we will continue to have that volume of orders and time will tell what buying behavior is going to be. Who knows what's going to happen to the beauty industry, if people decide they can do their own hair and their own nails, what's going to happen.
Liz: So, I'm actually very interested in what happens to the beauty industry as a whole. But I think that buyer behavior is going to change in general and I think that brands have had to think very hard about their manufacturing processes, where they're going to manufacturer, and ultimately what that's going to look like in current times in a post COVID-19 sort of environment. James we can go to the next one. Almost everybody I talked to said that they had pivoted to offer merchant fulfilled options for their products. Obviously, for the people who were restricted from the items that they could send into FBA. But even then brands who were still shipping into FBA as essential goods, and some chose the prep center route.
Liz: But a surprising number of them actually rented warehouse space, hired workers and started fulfilling their items themselves. So there was a whole shift in their processes, in their overhead, and they don't plan to stop. A lot of the brands I talked to you plan to keep a certain amount of inventory in their factory from reaching fulfilling from now on, because it's worked out really well, and it actually dovetails in the next slide, but we don't need that yet. I wanted to talk about a brand that's in garden decor they have 1000 [inaudible 00:40:40], and despite the fact that their items weren't essential, they sold only slightly less than March 2020 than all of 2018. So their sales have been rising every year.
Liz: Their agency helped them make preparations in advance instead of great relationships with FedEx and UPS outside of Amazon and they created FBM listings fulfilled by merchant listings. So that if FBA ran out of stock, they'd be able to mark products as in stock in their own warehouses, and you have to think about restrictions in different states too. So that particular businesses is Los Angeles based in California, and that area was among the first to lock down, but their agency so what was coming and helped them diversify their warehouse to add stock to a warehouse in the Midwest, creating a backup fulfillment partner, and allowing the Midwest fulfillment option to step in if that state had different laws, say California or vice versa, and they turned on fulfillment by merchant and prime in certain states. And the rest of the states they set up FBM listings and tie their pricing to the relationships with FedEx and UPS. So they were able to fold that in.
Liz: Some brands weren't that lucky, they had to pivot on a dime, and they had to do other things to make up for the shipping costs that are associated with fulfilling by merchant. I think that all of this poses a really interesting supply chain and inventory management challenge to large and mid sized and small brands. I mean, anybody who is trying to play an eCommerce space has a status quo sort of that they've adopted, and now things have sort of blown up, and it's time to sort of reevaluate and take a look at what you have in place should shipping be a lot longer from Amazon, should you not be able to send certain items into Amazon, and so on. And what I'm seeing is that brands are willing to take on the additional complexity, and not to mention the elevated shipping costs in order to make the sales in eCommerce regardless of what's currently allowed to be shipped into FBA warehouses, and thank goodness for prep services, right? Because not everybody's got the capability to do that in house.
Liz: So the people that are facing increased shipping charges, James, let's go to the next one. I did talk to another agency who had a client who created merchant fulfilled versions of their listings, and they sort of bundled their things because shipping multiple items didn't cost that much more than shipping one item, but they were absolutely getting killed on shipping one offs, and that worked out really well.
Liz: People aren't afraid to buy in bulk right now, and I think that a lot of the grocery data that we saw today is a testament to that, with cart sizes being larger, and people ordering more frequently from Instacart, and right after this, I'm going to pick up my Kroger cock list order and I think I ordered way too much stuff. And for this particular client of this agency, they only ran a little bit of advertising. They put the listing up as a merchant fulfilled listing and they got sales within 24 hours and a lot of the orders they were getting, we're coming from like New York and New Jersey, because people were on lockdown there and they're not afraid to buy in bulk right now, and people needs both essential food goods and luxury food goods too. This was a luxury food, good brand, and I think of brands get creative with their product offerings and offer bundles and multi-packs for merchant fulfillment, I think that's going to increase customer satisfaction in the long run
Liz: You've got rules that you've got to follow, obviously with Amazon, but I think that brands are getting to the point where they're willing to get creative about their offerings, they're willing to get creative about their on and off Amazon advertising because you obviously as Joe said, don't advertise a category that's not going to sell right now.
Liz: So it's a good opportunity right now to with the items that have demand, get creative with how you fulfill those, with how you manufacture them and to also think about product offerings that are going to help people who are still in quarantine, people who are coming out of quarantine, and just pay attention to the marketplace and pay attention to trends and listen to those guys that came before me because they're doing the analysis, I think that you need to really make good decisions about your products.
Liz: James, let's do one more slide. This is the half point that I wanted to say. While there has been an increase in sales on Walmart and pretty much every place other than Etsy, I haven't seen a lot of the brands that I've talked to, a lot of the brands that are with the agencies that I work with that are trying to get on Walmart or trying to get on Target right away.
Liz: They're not panicking and trying to diversify channels right now. In other words, I don't think a lot of people have lost faith in Amazon. I think Amazon still a really strong channel. Obviously, it's like the Uber, big strong channel. I talked to a pet food brand that was just starting to launch on Amazon when the FBA restrictions hit. They had just gotten their stuff there and luckily their items were deemed essential because it's pet food. But it still took a really long time for their items to be available for purchase, and I asked if they were disillusioned or disappointed in any way or if they were considering other channels, and the answer was a definitive no.
Liz: They're excited to go on Amazon despite the current world events, and they don't have any plans to expand to other marketplaces anytime soon. Overall, the people that I've talked to you have had the same philosophy. People who are selling on other marketplaces are seeing an increase in sales on those marketplaces. People who are selling on Walmart have seen an increase in sales from Walmart. However, Joe, I think Marketplace Pulse actually published an article saying that the growth on Walmart they weren't adding a ton of new sellers. I think that's probably because they're having I think there's a little glitch with accepting new sellers on Walmart right now. I could be mistaken. So somebody will need to keep me honest, but I do see brands devoted to Amazon trying to accommodate changes at Amazon and I also see them selling on their own websites.
Liz: Almost everybody I talked to you also said, and yeah, we're redoing our website. This is a good time to redo our website. So I think that right now things are still difficult. Prime shoppers aren't getting Prime delivery times, but yet we haven't seen a lot of people drop out of Prime. I have heard a couple whispers about people kind of wanting a little bit of a refund or their money back. I don't know that Amazon's going to play that because we have all this Prime video that we're watching while we're stuck at home, right? A lot of changes are happening and it's even more than usual right now, but from what I'm seeing, brands are being flexible, agencies are being flexible and coming up with creative solutions, and I don't think that this is going to come anywhere close to hurting brand acceleration on Amazon, especially if a couple of tweaks are made to processes and you don't get into a complacent place where you're like, oh, that factory will just make my thing forever, or oh, I can just always do FBA and I never need to think about FBM.
Liz: I think that being agile and being open to opportunity is the key to being successful in the future. So, key takeaways, challenges for brands with manufacturing overseas and domestic, short term solutions might turn into long term investments, domestic production, diverse production, brands are positively and negatively impacted by COVID-19 but they're going to keep the space and resources needed to pivot to a merchant fulfilled product, and it's a good time to get creative, and nobody's leaving Amazon anytime soon. That's it for me.
James: Great. Thank you, Liz. So we still have about 10 or 12 minutes left to take Q&A. At this point, I'm going to go to our questions, and I've got one here for Joe. Where would you suggest pulling product sales trend data from if looking for non-pandemic trends when planning for future products? Is there information, Joe that you can share around how we might be able to make sense of what's happened here in the last couple months, but apply it to historical data, so we have a better view of the future.
Joe: I think the first obvious move would be to look at data before a epidemic has started. So the sales trends from January, all the sales trends from last March or April are much more indicative of what's going to be in the future than the current trends. But then the question is, are you trying to source products for sort of for the next three months, or you're trying to source products for long term? And based on that, I guess you can adjust the data sources.
James: Thank you, Joe. We had a question here. Walmart's not accepting new sellers as you had mentioned Liz, does anyone here on the panel know of ways to get approved to become a new seller.
Joe: I don't know how to get approved as a seller but Walmart is definitely accepting new sellers.
Liz: I know some people have had problems but there are a couple of agencies that can help with that. So if you're having trouble email me email@example.com and I'll try to connect you with an agency that can help you.
James: A question here, does switching to fulfilled by merchant affect product listing positioning on Amazon? Is that something any of you can comment on.
Joe: I mean, it shouldn't but I guess it does. At least it used to. I don't know how it is now in the last couple weeks because Amazon has tried to make the ranking in the Buy Box more fair in the last couple of weeks. But I haven't seen how has that affected the search rankings yet.
James: Another question, how much of the demand increase to non-Amazon retailers is specifically being caused because Amazon is padding their lead times? We certainly had some discussion about the possibility of that causing people to go shop elsewhere. Any specific guidance around the cause and effect that might be happening here because of Amazon's lead times.
Scott: We think part of it, James, just the capacity issues that we previously discussed. I mean, at the end of the day, whether it was Instacart, Walmart, Amazon, couldn't get what you wanted, because demand far outstrips supply because people didn't want to leave their homes and they want stuff delivered to them.
James: So certainly, there's been a rise with some of these other shipping companies or certainly delivery companies being able to supply customers with products. My personal experience is that there are still delays with some of those companies as well, and so everybody is hampered by having more demand than they can support right now. Are there companies-
Joe: I would say that I think there's probably like three different types. On Etsy sales are up because there's face masks now on Etsy and all the other items as well as people are buying items to make their lives go easier. On the likes of Walmart sales are up because people are doing delivery comparisons probably the most, and then the likes of Target sales are up because Target consumers are now buying online rather than going in the stores. So it depends how these companies do fulfillment, it depends what it is companies are doing to do delivery items, and that's what influences the overall lift for these other retailers.
Joe: But clearly Amazon's slow delivery is causing people to do deliberate comparison, and that's very indicative from the search, sorry, the web traffic increase across the board for non-Amazon retailers.
James: ... Scott, a question for you. Have you seen any information specifically about alcohol sales happening online? Alcohol seems to under index versus other grocery items, I'm just wondering if right now, maybe here in the US, people are enjoying their online alcohol purchases.
Scott: I don't have any hard data on that. It's hard for me to imagine everyone's kind of stuck at home with nothing to do and alcohol sales are down, that makes zero sense. But, at the end of the day, there's still a lot of laws regarding it, right? I know parts of Pennsylvania, for example, the distributors were shut down, right? Because they weren't deemed essential. I think that's kind of crazy, but not my call, because I'm not the governor there. So I suspect part of it is just, all the old prohibition laws that what the reason we have so little alcohol kind of distributed online as it is, is really a regulatory issue rather than a demand issue.
James: Fair enough.
Nich: I think the transition though like we were talking about delivery comparisons to buy online, pick up. On the curbside, we've seen that with the big box here in the Seattle area with BevMo! for example, going 100% online for your alcohol, and you pick up at the sliding glass doors at the BevMo! I mean that's the case for Best Buy as well with a huge surge and taking delivery comparison out of the picture, you'll go and be that last mile yourself as long as you can buy it online and not have to actually go in the store.
James: Okay, next question. For brands that are seeing a surge because all of a sudden there's much bigger audience, what other platforms would you recommend advertising on to drive eyes to your Amazon listings.
Joe: Google Shopping.
Nich: Yeah, newly free Google Shopping, definitely very interesting. Leverage Amazon attribution data to track the efficacy of your spend across shopping channels like that being shopping, obviously, as well. We've seen a huge uptick, and especially some of the more advanced large CPGs in the percentage of their marketing spend allocated toward driving traffic into their retail partners like Amazon or Walmart, to where for one of the largest brand holding companies went from 2% of their spend associated in this channel to 10% of their spend, spent through channels like Facebook and search like Google, et cetera, driving into these retailers. Especially now that we can start to track and deep link between the Facebook ad experience on mobile into the mobile app of Amazon and actually show the path to purchase and conversion mapping. So it's definitely a major strategy.
Nich: I expect, as we see lower costs in CPMs on social channels, there'll be a really interesting opportunity to drive increased eyeballs in the event that you're not hampered by stock issues or delivery windows for your business, I think. Whereas one of the questions was like, is there a depth or pressure that we need to test here before we can get to where we can actually scale because there's a lot of issues affecting what you can do with advertising right now. But I think the sustained growth of that we'll see that as a bigger trend.
James: We have time for one more question here. I think this question is probably for you, Joe. Any trends you can share with us recently as to what's happening with non-essential products like apparel or footwear? Are you seeing any pickup in sales there at all.
Joe: I think over the last couple of weeks as the sort of craziness of the pandemic has kind of settled and the sort of the demand for essentials is kind of remained consistent I guess and as people have started to receive the checks, I think there is a kind of the demand for other items. Like clothing has resumed but it's very clearly still down quite a lot. I saw today that Target had to basically write down most of their sales in the apparel category. I'm sure it's not as bad on Amazon for the sales for clothes are down pretty drastically. I guess kind of the only good thing about it is, it's very unevenly distributed in the types of clothing.
Joe: So for example, the demand for workout gear, very high, demand for swimsuits, very low, and so overall apparel I guess is doing okay, but depending on which type of apparel we're talking about, you can see very different kind of sales.
James: Thank you, Joe. So I thank all of you for joining us today. Thanks to our four panelists. The slide you have in front of you has the contact information for each of these four panelists should you have any follow up questions that you want to send. We will be sharing a copy of the video a little bit later, in the next day or so.
James: I thank you all for joining and I wish you all a good health and stay sane as you spend more time with your families than you've ever spent with before. So thank you and have a good day.
Scott: Thanks, James.
Nich: Thanks, James. Take care.
Originally published on April 24, 2020, updated June 4, 2020
This post is accurate as of the date of publication. Some features and information may have changed due to product updates or Amazon policy changes.